Tuesday, October 21, 2008

If you read today's New Paper, there is a poignant story about a cancer patient who lost $190,000 in structured products (both minibond and DBS High Notes 5). The retiree now left with nothing suffers from depression and cannot afford her cancer treatment. This is only one story - there are thousands of other sad stories of victims who labored their entire life only to have their savings wiped out by structured products that imploded. If you watched the parliament sitting yesterday, there was one question left unanswered:

"Mr Low also asked if the investors’ plight was the result of a‘less prudent regulation by the MAS’ and ‘the Government’s decision to liberalise the financial market"

Why were these products allowed into Singapore? Why did regulators not stop the marketing of structured products despite numerous complaints? Why were there no checks on the banks to ensure they complied with regulation in the sale of these products? For many years, our leaders wanted Singapore to be a financial hub - a place where the wealthy in the region would come to park their money. We wanted to be the Merill of the east, the Lehman of Asia, a magnet for money...we wanted to host the hedge fund managers, the investment bankers...we wanted to have a part of Wall Street's profits and our leaders admired investment bankers especially the way they were paid....and they believed that high pay would buy competence:

.

"...you have to pay the market rate or the man will up stakes and join Morgan Stanley or Lehman Brothers or Goldman Sachs" - ,MM Lee April 2007

.

Nevermind what Wall Street does for money...if it is money, it has to be good!! We started to educate our students to be financial engineers instead of civil engineers and wealth managers instead of people managers. For the sector to grow, new products and new services have to be introduced, regulation relaxed so that more sophisticated products can get to the market. Equity link notes, minibonds, etc guaranteed but not really guaranteed, protected but not really protected, marketed with fine prints and 100 page prospectus. Banks love them because profit margins are high. RMs love them because commissions are high. Magnificent posters designed to give complete assurance, potential returns that are almost never achieved, risks that are always obscured by complexity and payback that cannot be determined without computers and models. This thing started to grow. Initially, products were sold to high net worth individuals but there were not enough of such people and some of them were smart enough to know what the banks were up to. To keep it growing, they marketed the stuff to the retiree who just got his CPF money, that old lady who wanted only to put her money into a fixed deposit and to the people least likely to understand what the products are.

.

This my friend is a story of greed. None of the products are any good or brought much benefit relative to risks to the people who bought them. The banks did not do a service to the customers to earn their money. They merely passed on the risk and collected the profits. The more the risks are hidden by complexity, the higher the the profit margins and the higher the commission for those who sold them. You can go through many of these products here and find they are bad products which have been shamelessly marketed with the intent to create false expectations.

.

"'So MAS has never said that these are risk-free products or low-risk products or safe products"- Minister Lim Hng Kiang

.

There are many countries that did not allow the sale of minibonds. One of them is Malaysia which forbid the sale of the minibonds because their regulators felt that these were too complex and risky to be sold to retailers. MAS never prevented these unsafe products from being sold to retailers because with our govt aspirations to be a financial hub, our banks were allowed to jumped onto Wall Street's bandwagon selling derivatives to ordinary Singaporeans to boost their bottomline. For a while this generated growth for our financial sector - a key goal of the govt. But there is a price to be paid when greed overcomes prudence and fiduciary duty is forgotten....traded away for commissions....

32 comments:

"'So MAS has never said that these are risk-free products or low-risk products or safe products"- Minister Lim Hng Kiang

Our dear Mr Lim is missing the point. The issue is misrepresentation. The other is why are these High Notes 5 allowed to be issued to these retirees in the first place, when all they wanted were a fixed-deposits?

Furthermore, passing this kinda scandal off as a result of 'risk-taking' is simply despicable and highly misleading (see the pattern?).

There are ways to manage risk. There are ways to limit losses. That's what you mean by lowering risks. However, these people were induced somehow by our dear DBS to expose their hard-earned retire funds to the risk of being ENTIRELY WIPED OUT BY A SINGLE ISOLATED EVENT. This is not a result of low-risk investments!

I can't see how a professional can defend such actions. Using 'no one can foresee a collapse of such a reputable bank' is lame. If it's such an unforeseeable event, such CDS to insure against the collapse of Lehman wouldn't even have existed!

And there are still so many more reasons out there why DBS and the relevant FIs should pay the full price for their poor ethics and bad practice.

"These are explained in the first page or second page, that these are structured products and it’s in bold print, that you can lose everything."

That doesn't say much about the inherent risk too, nor does it excuse the banks from their actions.

I could hold on to a mutual fund, bond fund, or a diversified portfolio of stocks and it's theoretically possible that that I may lose everything too, when the risks are far lower, and especially the likelihood of one losing everything.

"...there is a poignant story about a cancer patient who lost $190,000 in structured products (both minibond and DBS High Notes 5). The retiree now left with nothing suffers from depression and cannot afford her cancer treatment."

PAP is not going to do anything to help the plight of these people. MAS and DBS enjoy an incestuous relationship as DBS is largely owned by Temasek and who controls MAS? The husband of Ho Ching?

Ms Cancer Patient should consider her money gone and start making preparations for departure, since she is not some PAP-connected ScumInWhite.

I have no sympathy if Ms Cancer Patient voted PAP in the last election.

i have a fr's colleague..his rich boss (with kind of elitist mentality) said those victims if they can't survive after losing $ in this debacle..should commit suicide. after hearing i can't believe the society has become like a dog eat dog.

1)Too bad if you are born stupid or choose to be because you don't take advantage of the educational opportunities we provide for you ( we don't need to probe and find out why etc ) 2)Too bad if you are naive and get sucked into buying investment products masquerading as low risk and diversified ( nobody forced you to and the health warnings were all there in Page 1 to moot!)3)Too bad that you are a Spore citizen and have NS obligations but only slightly more privileges than non citizens. This is a globalised world and we need all the talent available. You can always emigrate if not happy. For every one that leaves, there are 10 lining up to enter.

Well, these 'investors' are your ah-kongs and ah-mahs who want to retire more easily in their twilight years where there is no safety net for them at if they are ill.

Is that a crime?

How do you feel if your own parents burden you with financial strains when you hardly have enough for your own family, kids education, mortgage payments, etc.

But I can tell you truthfully - it is a crime to 'milk' these elderly monies because they don't know what they are investing in.

How often have these RMs come to me and have asked me to invest in these products. This is how they usually say (read these words and tell me if you had received the same words), "These minibonds/structured derivatives/investments are similar to fixed deposits. In fact you get higher returns."

And showing these elderly folks brochures of all these American/European companies, they assured the elderly, "Don't worry, your capital is safe. Look at these big company names. Do you think they will be bankrupt?"

You tell me how I knew about it?

Because I was present while the RMs were 'hard-selling' to 2 elderly persons beside me. I was setting up my fixed deposit account. I rejected the option to go into these investments initially but after consideration, I did put in a very small investment as the economy was doing good.

That was like 5-7 years ago. And I have pulled out even before the maturity as I have no confidence in these RMs. When I call them up, they have absolutely no idea why my investment is losing money.

Are these RM right? Yes - their job is to sell. But if the buyer is not told or made aware of the risks and potential of losing everything, then it is the financial and bank policies that need to be questioned. The consumer protection comes first.

The RM is just a channel to sell these products the bank has put in place. The MAS has the power to approve these products to be released into the public market.

Don't blame these elderly persons because they don't have a good life and education like we do. In fact, you should pity them and help them in anyway. One day, it will all come back to you because you will grow old.

I read the reply from Mr Iswaran on electricity charges.From what I gather 80% of electricity is from natural gas.Since 2004 they have been overcharging consumers with a 3 month forward fuel price, while the cost price was a much lower natural gas price. All the time consumer was enriching the Govt owned Singapore Power / PUB.With the price increase in fuel, Govt feels it is not right to change the pricing scheme to enrich the consumers, as it would discourage Singapore powers (wholly owned by Govt) from investing in future infrastructure.

And it will probably spoil its plans to privatise Singapore powers if the cost structure is amended as no one would buy the privatised gas company if it charges a lower natural gas rate and profits go below $1bil.

And this future privatised gas is supposed to be good for consumers.

Yah, right. And all 84 MPs are supposed to agree quietly with this logic.

We pay the ministers millions so they can overcharge its citizens on basic utility like electricity. Whatever smart ideas these minister get, it is not to enrich the citizens, but to enrich Singapore powers by billions in profit.

Imagine, if our R and D comes out with power generated by solar or wind power, will our electricty price go down?

Unlikely, it will continue to be artificially propped high at oil fuel prices, to discourage wanton usage - forget about enriching our citizens on a monthly basis - give them only at election time.

Yesterday was a bad day, and we have many MPs asking how we can continue to fatten the goose, while its citizens face possible retrenchments - sure insensitivity.

Our reserves is for our future children? Please, my parents builtup the reserves, and it is not for us - it is for GIC and Temasek to punt the market. Meanwhile, they are not allowed to withdraw at 55 cos Minister says my dad will have a fling here, a fling there in Bintan, so they have to continue working even when they have CPF as GIC needs the money.

While Mr Tony Tan was smug enough to say Temasek and GIC would not indulge in sub prime assets since long ago, MAS (probably under PM Lee's watch) has allowed DBS to indulge wantonly in sub prime assets, and MAS allow DBS to resell to retailers, and now all 10000 individuals have to make 10000 individual complains, so as to protect DBS' interest.

I will remember this day for a long long time. Sure, continue to raise prices - a sure way to fatten the proverbial goose and pluck our shells. raemx

meanwhile - Singapore Powers instead of making investment in the Singapore power grid, went to SHOP for oversead power grid in their GREED - while selling away our national treasure, our power agencies to foreign entities. And it is supposed to result in lower electricity bills in future, because our million dollar minister says so, it must be so.

In many ways this bloody government has brainwashed the people, so it's hard for the commoners. only terrorism and violence befits this government. long for the day when Lee Hsien Loong's and all the PAP MP heads are hanged on the Singapore Flyer

i watched mr tan on blogtv. he came across as an upright individual who believes in hard work and honest living. i am not sure about his religious background though but, there are hundreds of thousands of religious folks following leaders who claimed to be "righteous" or "moralistic" in god's name or more righteous then anyone outside their faith...so where are these leaders and their followers when the people needs them?

no wonder nations are going to the dogs!

by their fruits you shall know whether they are wolves or leaders in the caliber of mr tan.

if only these preachers and their followers acted out their beliefs, this fight for justice and equality would have taken on a very different tone or turn.

the approach of the authorities and corporate giants have always been to divide and conquer the people. only strength in unity will assure victory.

I just love Singaporeans, they have been repeatedly screwed and yet they queue up for more every 5 years. The Malaysians electorate has proven that they are not a apathetic and have sent the message that the government is accountable t the people and not the other way around like here. Say what you may but as Lucky pointed out the Malaysians made the right call and protected the retail investors. When the going was good, much credit and back patting was going to praise our leader for his financial reforms and now he has done dumb. Why as proven by many issues, the policies did not pass the test of time and were proven to be the wrong call.But yet we queue up for more.

Am I right to say 'if Singapore needs money', they exploit Singaporeans?

Arabs exploit their oils, but they have to get the co-operations of the US and European Oil Companies. Or can I say the Arabs have to be in cahoot with the Oil Companies to manipulate the oil prices.

It was definitely exploitation when oil was pushed up to US$155. How else can one explains the current price of around US$70?Arabs and Oil Companies exploit customers who are mainly foreigners. When Singapore exploits, the victims are almost all Singaporeans.

No one has thus far provided any explanation as to how Hong Kong is able to lower its' electricity tariff whereas another ex British Colony raised its' STATE OPERATED POWER SUPPLY by a MASSIVE 21+%.

A Hokkien Saying goes 'when one dies of anger, the autopsy will not be able to find the cause of death is anger. So one word of caution, do not get too overworked over those knaves.

i think mr tan is a good model of a leader or servant of the people in crisis. someone who emerges in times of trouble to offer his/her expertise but at the end of the day....will never want to be the hero some people expect of him( he said he doesn't know what people would expect of such a hero). people like mr tan will probably not want to be reveled like some old man who cling to power and even promised to hold on to that power in his grave.

i am sure when mr tan finished his part in this crisis, he will just resume his normal ordinary citizen role.

"None of the products are any good or brought much benefit relative to risks to the people who bought them" that is an unfair statement. Many have gained higher returns than what the fixed deposits offered during the good times. We as consumers should desire such financial engineered products to help increase our returns and beat the inflation rates. Even in this time of crisis offers opportunity. Perhaps if we are willing to put in our money today, we might see it double within 4 years.

"In many ways this bloody government has brainwashed the people, so it's hard for the commoners. only terrorism and violence befits this government. long for the day when Lee Hsien Loong's and all the PAP MP heads are hanged on the Singapore Flyer"

Go for it, whoever wrote this! Put ur name/NRIC down, and do it, for your family, for your parents, for glory. We've gone to breeding terror online in SG. Amazing.

I like you argument. For the sake of our children and grandchildren living in Singapore, you should form a political party and win some seats in the parliament. Otherwise Singapore will be a country with full of cheaters:--Lawyer cheating money,--Charity organisation cheating money,--Monk cheating money,--Now banks cheating money,--Who is next?We have to upgrade our A-team leaders to A+ team leaders so that our children can live in a safe country. DON'T LET THE CHEATERS SWALLOW OUR MONEY AND OUR COUNTRY.